The EU budget, UK contributions to it and suggestions “Brussels” is demanding £500m more from UK taxpayers

May 30th, 2014

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We have in recent days seen lurid headlines – certainly not discouraged by the UK Treasury – about “Brussels” demanding an extra £500m from UK taxpayers.

The truth behind that is below.

But first, some general points. The media portrayal of the contribution the UK makes to the EU budget as excessive compared to other richer Member States and money down the drain is utterly misleading.

The best estimate (there are several variations depending on the exact basis for calculation) of the UK net contribution for 2012 (no figures are yet available for 2013) is EUR 7.366bn or very roughly £6bn. This – £16m a day, or about £2 per citizen per week, rather than the £55m a day that some have claimed – is the gross sum the UK puts into the EU budget minus the money that flows back to the UK, whether via government bodies or directly to beneficiaries. This figure is referred to as the Operating Budgetary Balance in this interactive table.

This £6bn represents considerably less than 1 % of total UK public spending.

In per capita terms, the UK is nowhere near the largest net contributor but at the highest the equal eighth biggest. It is behind Sweden, Denmark, Germany, Luxembourg , Netherlands, France and Belgium and very roughly level with Austria and Finland.

Coming back to the alleged “Brussels demand” for £500m more from the UK.

The European Commission has had to inform Member States that it is likely to need an extra EUR 2.16bn in national contributions for 2014 to meet spending commitments.

This would not in proportionate terms mean £500m from the UK, but rather about EUR270m/£230m.

The rest of the money needed, about EUR 2.57bn/£2.10m would, as is normal practice, come from competition fines imposed on big businesses that have been caught cheating customers.

So why is this extra money needed?

In basic terms, because Member States both set the EU budget and spend most of it (80% is allocated at national level), and they have spent more than the budget they themselves set.

Some of that additional spending was unforeseen, such as extra help for Ukraine (the UK strongly supported that) and additional money to tackle youth unemployment. Of course, such investment in getting young people off the dole in the end saves vastly more than what it costs.

Other spending commitments the Member States have made over and above the level at which they set the budget are linked to longstanding EU programmes.

In all cases, the bills will need to be paid and the Member States are demanding that the Commission pay those bills without having provided the means for it to do so. The Commission of course cannot print money.

The bottom line is that some national politicians take a tough line over the headline levels of the EU budget – which are negotiated in the glare of media attention at EU summits – but want to see any cuts in funding implemented in Member States other than their own.

The UK government has told the media that the Commission should find the extra money by reorganising existing funds.

That of course would mean taking money away from beneficiaries that have already been promised funds – and the very same national politicians have no intention of allowing that to happen.

It is important to point out that the UK is far from the only Member State which agrees spending commitments and calls upon the Commission to produce money out of a hat to meet them while refusing any cuts to EU funds for their own country.

But to take some British examples, despite overall cuts to the Common Agricultural Policy, direct payments to UK farmers are projected to remain steady. About EUR 6bn/£5bn is due to be spent on European Social Fund and regional projects in England alone. The UK is the leading beneficiary of EU research and innovation funding and could get about EUR 1.5bn/£1.2bn in 2014. British young people, academics and other participants in the Erasmus+ scheme are estimated to be getting about EUR120m/£100m.

Is the UK government willing to see the money to fill the hole in the budget come from cutting payments to UK farmers or students, closing down research projects or slashing job creation schemes in British cities? No.

No other Member States are stepping forward to volunteer savings from “their” part of the budget either. The situation is rather as if someone decides to spend more than expected on their credit card and then declines to pay the bill.

The only viable solution is to put more money – a limited amount when looked at in the context of overall public spending, given the overall EU budget is around 1% of GDP and EUR 2.16bn is around 2% of that EU budget – into the pot to meet the commitments the Member States have themselves freely decided to make

Important to note, too, that this will not mean going above the ceiling that national leaders and the European Parliament agreed for 2014 in the seven-year budget, or “multi-annual financial framework”, which was painstakingly negotiated last year but only above the considerably lower figure finally earmarked for 2014 in separate annual budget negotiations.

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